Stop the music, says Johnson as she rules against radio merger

The competition watchdog yesterday blocked a merger of the radio stations Vibe and Galaxy, sparking City fears that consolidation in the industry will fail to come as quickly as some had hoped.

Melanie Johnson, the Competition minister, ruled that GWR could not merge Vibe 101 with the dance music station Galaxy. Vibe is a joint venture between GWR, owner of Classic FM, and Scottish Radio Holdings. It bought the Bristol-based Galaxy for £12.5m from Chrysalis in September.

Ms Johnson ruled, however, that the merger would "operate against the public interest", as the enlarged station would be able to use its huge market share to force up prices to "vulnerable advertisers" in the Bath and Bristol areas and put other stations at a disadvantage.

GWR already had a market-leading position in Bristol of 75 per cent. It has been asked to reduce its 49 per cent stake in Vibe to no more than 24.9 per cent to remedy the Competition Commission's concerns. It would also have to demonstrate, whatever its stake below 24.9 per cent, that it held no material influence over the radio station and GWR's sales house would not be allowed to sell advertising air time for Vibe.

If GWR is not prepared to undertake these remedies, the commission wants GWR to divest its shareholding in Vibe entirely. These recommendations have been put to the Office of Fair Trading, which will now negotiate with GWR on what actions it will take.

A spokesman for GWR said: "GWR will consider the commission's announcement in consultation with our advisers and our partners, Scottish Radio Holdings." Shares in GWR closed down 6 per cent at 172p.

The industry was shocked when the transaction was called in by the commission last month because of its tiny size. The advertising revenues of the Vibe stations in Bath and Bristol total £300,000.

New legislation that is passing through Parliament is intended to free up opportunities for radio stations to merge, but yesterday's decision shows the competition rules are still being applied tightly. Paul Richards, an analyst at Numis Securities, said: "This ruling does make deals between the local, regional stations quite difficult to push through on competition grounds – so Chrysalis, Capital, Emap and Scottish Radio Holdings may have to re-think their plans. Consolidation will still happen, however, despite this little dampener. It is now more likely to happen between adjacent stations, rather than with ones that overlap."

Chrysalis said the ruling would not affect its merger plans. Paul Riley, the chief executive, said: "This is a very specific case. I don't think anyone else is contemplating a merger with that level of dominance. We do not operate anywhere with such a high market share."